Buy This Stock For 22% Return, Recorded Solid Digital Growth: HDFC Securities

Renowned brokerage firm HDFC Securities suggested investors to buy the stock of Infosys (INFO) for a 22.35% return in 1 year. The firm stated, "The near-term margin trajectory (of Infosys) is directed at investments in order to scale the cloud offering; it has ramifications on growth acceleration and the resultant operating leverage."

Target Price

The Current Market Price (CMP) of Infosys is Rs. 1749. HDFC Securities has estimated a Target Price for the stock at Rs. 2140. The stock is expected to offer a 22.35% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 1749
Target Price	Rs. 2140
1 year return	22.35%

Company performance

INFO reported muted USD revenue growth of +1.2% QoQ and +20.6% YoY, impacted partially by client contractual situation, and seasonality. Growth was led by digital revenue growing at +1.9/36.2% QoQ/YoY while core services declined 1% QoQ. EBITM declined 193 bps QoQ to 21.6%, impacted by lower working days, realization and client contract impact (-160bps), lower utilization (-60bps), and higher visa cost and sub-con (-100bps). LTM attrition moved higher to 27.7% (+220bps QoQ); however, the quarterly annualized rate declined by 5%. The company's Sub-contracting cost increased in Q4 by 2% QoQ, it is expected to moderate ahead as the supply crunch normalizes.

Comments by HDFC Securities

According to HDFC, "Infosys' Q4 was sub-par, but we remain confident in the company's prospects of growth leadership within tier-1 IT. A modest implied growth rate in digital services (relative to historical trends) will maintain INFO's track record of overshooting the initial revenue guidance. INFO's key drivers include, accelerated net-new large deal wins that provide near-term growth visibility; strong digital practice, with USD 10bn+ revenue rate (41% growth in FY22) and pedigree in large client mining; highest-ever quarterly net addition of ~22k and hiring momentum that is indicative of demand; and expected recovery in life science vertical."

About the company

Infosys is a global leader in next-generation digital services and consulting. They enable clients in more than 50 countries to navigate their digital transformation. Established in 1981, Infosys is an NYSE-listed global consulting and IT services company with more than 310k employees. From a capital of US$250, they have grown to become a US$ 16.31 billion (FY22 revenues) company with a market capitalization of approximately US$ 104.71 billion. The company's net headcount addition was ~22k in Q4 (8% QoQ vs. 6% QoQ for TCS) and the company plans to add >50k fresher in FY23E.

Disclaimer

The above stock was picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.